
^•^\^-^^ 



U. S. DEPARTMENT OF AGRICULTURE. 

OFFICE OF THE SECRETARY, 

ORGANIZATION AND CONDUCT OF A MARKET SERVICE IN THE DE- 
PARTMENT OF AGRICULTURE, DISCUSSED AT A CONFERENCE HELD 
AT THE DEPARTMENT ON APRIL 29, 1913. 

INTRODUCTION. 

The last session of the Sixty-second Congress made an appropria- 
tion of $50,000, of which $10,000 was to be immediately available, "to 
enable the Secretary of Agriculture to acquire and to diffuse among 
the people of the United States useful information on subjects con- 
nected with the marketing and distributing of farm products, and for 
the employment of persons and means necessary in the city of Wash- 
ington and elsewhere.'' 

Immediately after the passage of the act, preliminary steps were 
inaugurated to bring together as a nucleus for the organization and 
subsequent conduct of the work all available facts and experience 
having any bearing on it. One of these steps was a conference of 
some of the leading experts and students in this field, which was 
held in the department April 29, in accordance with a notice sent 
out by the Assistant Secretary of Agriculture, the object of the 
meeting being, as stated in the notice, to " secure the views of experts 
and others in the problem of organizing and conducting a marketing 
service in the Department of Agriculture." 

The meeting was presided over by the Secretary of Agricultur6j 
who spoke briefly of the importance and complexity of the task of 
carrying out the provisions of the act, the widespread interest in the 
subject, the meagerness and primitiveness of the knowledge regard- 
ing it, and the likelihood of a considerable length of time elapsing 
before it can be studied adequately and definite conclusions reached. 
The Secretary thought that the provisions of the act suggested a ten- 
tative division of the subject into four groups: 

(1) Organized marketing, which will include studying and aiding 
existing organizations for marketing farm products, the promotion of 
such markets, and the study of State and national laws affecting 
organized production. 

(2) Marketing news service, the work along this line for the time 
being to consist mainly of an investigation of the practical methods 
and cost of conducting such a service, and later, if found feasible, 
to include the daily collection and distribution of information relating 
to supply and demand in the leading markets, progress of planting 
and area planted, and condition of growing crops. 

613.8—13 



2 MARKET SERVICE IN DEPARTMENT OF AGRICULTURE; 

(3) Methods and cost of distribution, which will include a study 
of prices paid the producer, changes of ownership between producer 
and consumer, prices and profits at each stage, and final price paid 
by consumer. 

(4) Transportation problems of specific localities, which will 
include the delivery of products to local consumers and shipment to 
distant markets. 

At the invitation of the Secretary, Mr. G. Harold Powell, for- 
merly of the department, but for some time general manager of the 
California Fruit Growers' Exchange, the most extensive cooperative 
nonprofit rural organization in the country, addressed the meeting 
on the subject of his experience with organized agricultural indus- 
tries, with some suggestions regarding work that might be under- 
taken by the department along this line. The activities of the 
exchange in question are confined to citrus fruits; nevertheless, its 
organization and operations involving a considerable number of the 
principles and problems which would necessarily enter into any rural 
organization are of general interest, and their explanation in detail 
follows, substantially as given by Mr. Powell. 

THE CALIFORNIA CITRUS INDUSTRY, ITS ORGANIZATION AND OPERATION. 

The citrus industry of California represents an investment of about 
$200.000,<X>0. There are 200,000 acres of oranges, lemons, and grapefruit in the 
State, and it costs about $1,000 an acre to bring the groves into bearing. In a 
normal crop year 45,000 carloads, or 18,000.000 boxes, of fruit are shipped, 
more than 90 per cent of which is produced in a comparatively small area in 
southern California. The growers are an unusual class of men, many of them 
being progressive farmers from the East, lawyers, merchants, doctors, and busi- 
ness men who have moved to the West to engage in horticulture. 

Twenty years ago the growers produced about 5,000 carloads of oranges. 
They sold the fruit, as most farm crops are sold even now, to local buyers or 
to representatives of distant firms, or it was consigned on commission to markets 
from 1,500 to 3,000 miles away, the only returns in this latter case frequently 
being bills for freight and selling charges. The buyers would purchase when 
there was a chance to make money; at other times the grower would assume 
the risks of distribution or would have to sell at a sacrifice. Sometimes the 
local buyers divided the territory and did not compete with each other or they 
fixed a maximum price to be paid for the fruit. Under either of these systems 
of suppi-essed competition the grower became helpless. These were known as 
the "red-ink" days in the California citrus industry. With 5,000 carloads of 
fruit to market annually, the growers thought that overproduction stared them 
in the face and the stability of the industry was questioned, but the real 
trouble came through bad distribution of the fruit and an inadequate local 
system of handling it. 

Gradually the growers began to believe that by organizing they might make 
more stable the distribution of their crops and create a larger demand. They 
had already begun to form local associations, build packing houses, and select 
managers to handle the business, the ob.iect being to bring together the fruit 
of the individual growers, standardize the grades, and prepare it for sale. 



D, OF 0. 

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MARKET SERVICE IN DEPARTMENT OF AGRICULTURE. 



. At first they sold to local buyers or to representatives of distant buyers, but 

1 before long tliey found it necessary to federate their local organizations and to 

~ develop a system which would insure a uniform distribution of their fruit, 

which is a perishable crop and must be sold quickly, to the jobbers in the 
markets of the United States and Canada. Without this system of wide dis- 
tribution under the control of the producer and the standardization of the 
picking and handling of the fruit a chaotic marketing condition existed, and the 
growers could not protect their property interests. The outcome was that many 
of the local organizations federated and formed what is now known as the 
" California Fruit Growers' Exchange." This exchange now includes IT district 
exchanges, composed of 115 local associations of from 40 to 200 members each, 
and acts as a clearing house «in providing facilities through which nearly 7,000 
growers, or 65 per cent of the industry, distribute and sell their fruit on a 
cash basis to the jobbers in the markets of the United States, Canada, and the 
United Kingdom at the actual cost of operation. During the past eight years 
the growers have sold $115,000,000 worth of fruit through the exchange and 
have lost in uncollected bills and in other ways less than $6,000. 

THE LOCAL ASSOCIATION : ITS ORGANIZATION AND FUNCTIONS. 

The local association is formed generally by from 4 to 200 growers organizing, 
without capital stock, a nonprofit corporation, which is handled by a manager, 
who is a salaried officer, through a board of directors, who serve gratis. If 
formed as a stock corporation, the association usually accumulates no surplus 
and pays no dividends except the usual rate of interest. Its function is to 
assemble the fruit of the members in the packing house and there grade, pack, 
pool, and prepare it for market. 

In some cases the grower picks his fruit, but in recent years most of the asso- 
ciations have assumed control of the picking, as well as the grading and pack- 
ing, so as to standardize its physical handling and in this way insure uni- 
formity, which is a big asset in the sale of any product. 

A few years ago the annual decay of orange and lemons in transit often 
amounted to a million and a half dollars. The cause of the trouble was be- 
lieved to be due to lack of icing, to sidetracking cars in the desert, and other 
abuses in the transportation service, but the Department of Agriculture found 
it was due to improper physical handling in preparing the fruit for shipment. 
As a result of the department's work and its recommendations, which have been 
generally adopted, the fruit is now usually picked through the associations by 
trained gangs of labor under competent foremen, the pickers are paid by the 
day rather than by the box, and care in handling is made a motive in every 
operation. 

Formerly, when the buyer packed the fruit for the grower it cost him from 
60 to 70 cents per box for oranges and $1 or more per box for lemons. Through 
the cooperative buying of paper, nails, box shook, and other supplies the asso- 
ciations have cut the cost to an average of 33 cents per box for oranges and 60 
cents per box for lemons, these figures including labor, packages and other ma' 
(erials, loading the fruit on cars, and all expenses connected with the mainte- 
nance and support of the associations, exclusive of the picking. The fruit is 
packed under brands which are the property of the local association, thus pre- 
•serving the individuality of the association and stimulating local pride, but the 
name of the central exchange and its advertised brands also appear on the 
package and on the fruit wrapper. 

The fruit of similar grades from the different members of the association is 
mingled and sold in common, the pool extending through a mouth, more or less. 



4 MAKKET SERVICE IN DEPARTMENT OF AGRICULTURE. 

WLieu a carload is ready for shipment it is marlveted liy the district exchange, 
with the advice of the association, through the agents and facilities provided 
by the California Fruit Growers' Exchange, and the proceeds of the sales are 
divided among the members of the association pro rata on the number of pounds 
of each grade shipped in the pool. 

THE DISTRICT EXCHANGE: ITS ORGANIZATION AND FUNCTIONS. 

The district exchanges, of which there are 17, are composed of the local asso- 
ciations, and, like the associations, are nonprofit corporations, operating for them 
at actual cost, or are pecuniary stock corporations operating on cooperative 
principles. Each exchange acts as a medium between the associations and the 
California Fruit Growers' Exchange. It orders cars for the associations and 
sees that they are i)laced for loading, keeps records of the cars shipped by its 
associations, informs itself through the California Fruit Growers' Exchange of 
every phase of the distributing and marketing business, and places this infor- 
mation before the associations. It also receives from the agents the proceeds 
from the fruit and turns them over to the associations for i)ro rata payment to 
the growers, as above explained, after deducting the actual cost of operation, 
which usually amounts to I5 to 2 cents per box. 

THE CENTRAL EXCHANGE : ITS ORGANIZATION AND FUNCTIONS. 

The California Fruit Growers' Exchange is the central body formed by the 
17 district exchanges, with a directorate consisting of one representative from 
each of these exchanges, who serves without pay, and a general manager, who is 
a salaried ofiicer. Like the associations and the district exchanges, it also is a 
nonprofit corjwration, conducting its business at the actual cost of operation 
and declaring no dividends. It has no assets except a paid-in capital of $1,700, 
office fixtures, and supplies, although it handles from $16,000,000 to $20,000,000 
worth of fruit annually, or about 05 per cent of the citrus-fruit crop of Cali- 
fornia, and is able to secure the necessary credit, the bankers of California 
realizing that the cooperative movement is the foundation stone on which the 
$200,000,000 invested in the citrus industry rests. In other words, this is a 
rural credit system of the soundest type, the federated moral security of 7,000 
growers and a history of careful management being its only collateral. 

The exchange has a legal department, which looks after any litigation that 
may arise; a traffic department, which looks after the routing of the cars and 
bandies all shipping claims; an advertising department, through which an exten- 
sive advertising campaign is conducted to increase the demand for fruit; a 
mutual insurance department, which handles the insurance for the different 
packing houses; and departments which carry out the will of the local associa- 
tions and district exchanges regarding the distribution, diversion, destination. 
and sale of each car. It also has a supply company, which is a stock corpora- 
tion with a capital stock of $1,000,000, the stockholders being the local associa- 
tions rather than the individual growers. This company was organized seven 
years ago because of the fact that the price of box shook was almost doubled in 
one year. After the company purchased timberlands and began the manufac- 
ture of boxes the box-making interests quickly reduced their prices to former 
levels. The company operates a manufiicturing department and a material 
supply department. The former leases timberlands, operates mills, and manu- 
factures the box materials used in shipping the fruit, while the latter provides 
the supplies used in the packing houses and the oi-chards, these beiug furnished 
to the members of the association at cost, including a charge for depreciation 



MARKET SERVICE IIST DEPARTMENT OF AGRICULTURE. 5 

and maintennnce. plus 6 per cent on the assets and capital devoted to or Invested 
in the department. The company has developed into a large institution, ]mr- 
chasing and manufacturing several million dollars' worth of supplies. 

The central exchange furnishes facilities for the distribution and marketing 
of the fruit by the district exchanges, and to do this it places bonded agents 
in the principal markets of the United States and Canada and one In Europe. 
These men are exclusive salaried agents, except in territories where only a 
small quantity of fruit is sold, in which places the services of brokers are some- 
times used. These agents work constantly to increase the trade, and in the 
sale of a car act directly under the order of the shipper. When a buyer wants 
a carload of fruit he takes the matter up with the agent in his city or district; 
the agent wires the details to the central exchange; this exchange takes it up 
with the district exchange handling the brand of fruit desired ; the district 
exchange takes it up with the association which owns such brand, ascertains the 
price it is willing to accept, and communicates the reply to the central exchange ; 
and the latter wires it to the agent, who then negotiates with the buyer. Any 
further communication necessary until the sale is effected or rejected is carried 
m in the same way between the agent and the shipper. When a sale is made 
the agent collects the monej' in the form of a check, made payable to the Cali- 
fornia Fruit Growers' Exchange. This check is deposited in a national bank, 
and at the same time a check is made payable to the shipper of the fruit, 
covering the full amount. This, with a duplicate deposit slip, showing that 
the money was deposited, passes through the office of the California Fruit 
Growers' Exchange to the shipper, and at the end of each month the central 
exchange levies an assessment against each district exchange for its approxi- 
mate pro i-ata share of the cost, based on the number of boxes shipped. The 
final adjustment is made with each district exchange at the end of each year. 
In 1911-12 the total cost of operation represented about 3§ per cent on the f. o. b. 
California returns, or less than 2* per cent on the gross sales. It costs the 
American farmer not less than 7 to 20 per cent on gross sales to market his 
crop. 

Under this system the growers and shippers, through their associations and 
district exchanges, regulate and control their shipments; that is, they determine 
the conditions under which their fruit shall be sold outside of the auction 
markets, ship when and in any amount they please, determine to what markets 
the fruit shall be consigned and where it shall be sold outside of the auction 
markets, and designate the price they are willing to accept. The central ex- 
change believes it an unwise policy to lodge in a central organization the power 
to fix prices on fruit owned by the different a.ssociations or to control its 
diversion or destination. Centralization of such power might result in its 
arbitrary use, and under present conditions it would be questionable whether a 
central organization exercising such power or which has the right to exercise 
it is on a legal basis. 

Through the agents the central exchange gathers daily information regard- 
ing the conditions of the market, secures detailed reports on the sale of every 
car of exchange fruit and on weatlier conditions, and sends this information 
in the form of daily bulletins to the district exchanges. These bulletins also 
include a catalogue of the details of exchange cars leaving California ; all tele- 
grams passing between the shipper and the agent regarding each car; several 
special reports from auction or private-sale mai'kets; and at the end of each 
week and month summaries of the different business operations of the system. 
With this information at hand each shipper can intelligently decide the various 
marketing problems for himself and thereby avoid chaotic distribution and 
demoralized sales. 



6 MARKET SERVICE IN DEPARTMENT OF AGRICULTURE. 

One of tlie most important fnnctions of the exchange is to increase the eon- 
sumption of oranges and lemons by advertising. The highest grade of fruit 
of each association is sold under a copyrighted brand, which is the property 
of the central exchange, and the second grade also is packed under an adver- 
tised brand, which supplements the brands of the local associations. By con- 
trolling the use of the advertised brands the exchange is in a position to make 
rules and regulations governing the grading and packing of the fruit sold 
under them. 

INFLUENCE OF ORGANIZED DISTRIBUTION ON RETAIL PRICES. 

Since the distribution of California citrus fruits has been organized 
the retail prices have been much more stable, and, considering the 
quality, they have been much lower. The reasons for these changes, 
as given by Mr. Powell, are, first, the fruit is distributed by the pro- 
ducers to the jobbers on a merchandising basis rather than by brokers 
or buyers who secure the fruit at the point of production, and, second, 
the distribution is systematized ; consequently, the supply in the dif- 
ferent markets is regular, and the jobbers, being able to secure regular 
supplies, sell the fruit quickly at a small margin, making a small 
profit on a large number of sales rather than a larger profit on a 
small number. 

When a 23erishable product is grown 1,500 miles from the center 
of distribution and is distributed on a speculative basis, the jobbing 
trade can ever be sure of regular supplies and consequently the job- 
bers and brokers charge a higher price to cover the risks; but when 
the producer eliminates speculation and the distribution is regular, the 
product becomes a staple merchandising article, and the jobber, the 
retailer, and the vender turn it over quickly at a small profit. When 
a crop is systematically distributed the consumer may share in the 
benefit of a cooperative organization, but where the product of such 
an organization is sold to buyers at the place of production, or where 
the producers send the crop on commission or handle it in small units 
through brokers, the consumer does not share in the benefit which 
results from organized distribution and may pay more than formerly. 
The only advantage of cooperative organization in this case are the 
lower cost of preparing the product for market and the ability to sell 
in large quantities. 

INFLUENCE OF ORGANIZATION ON RURAL LIFE. 

Aside from the purely business nature of the California fruit 
growers' organizations, Mr. Powell regards them as the strongest fac- 
tors in the upbuilding of rural life in the citrus districts of Cali- 
fornia. They exert a force in a rural community which an unorgan- 
ized industry can not possess. The people, he says, learn the value 
of cooperative activity, and this extends to every phase of country 
life. A business organization under the control of the producers 



MARKET SERVICE IN DEPARTMENT OF AGRICULTURE. 7 

is the strongest factor that can be brought into any agricultural com- 
munity. Such organizations may purchase supplies, spray cr fumi- 
gate orchards or protect them against frost injury, and work together 
to develop everything that betters the communities in which they 
exist. The citrus fruit growers' organizations have been a strong 
influence in the development of better schools, in the building of 
county and State roads, and in securing State appropriations for in- 
vestigational and educational purposes. 

MANAGEMENT OF RURAL ORGANIZ/ITIONS. 

One of the most difficult problems in cooperative organization, ac- 
cording to Mr. Powell, seems to be that of securing men with ade- 
quate experience in directing the associations. Those who have had 
the best records in California are men of executive and organizing 
ability who have a thorough understanding of the fruit growers 
and of the industry. The manager who is to succeed must possess 
business ability of a high order, sterling integrity, and tact and 
judgment in dealing with a large number of men; must hold the 
confidence of the directors and the interest of the members of the 
organization; must take the initiative in developing a progressive 
policy, and shape it into a working policy only after the directors 
and members understand and approve it. Many farmers' organiza.- 
tions will not employ competent managers ; others employ dictatorial 
managers and turn the affairs over to them to handle. The result 
usually in either case is failure. 

CONSTRUCTIVE SUGGESTIONS FOR DEPARTMENTAL WORK IN THE ORGANIZATION 
AND CONDUCT OF A MARKET SERVICE. 

In response to the Secretary's request for an expression of his 
opinion on the subject in question Mr. Powell suggested that the 
Government should not provide a crutch for the farmer to lean on 
when he can walk without it. In other words, the farmer should 
stand without support and work out his oavu salvation wherever he 
can do so alone. A movement on the part of the Government to 
actually help the farmer market his crops is an unwise policy except 
as it is an incidental part of a larger movement to help build up and 
organize the forces of rural life, and even in that case the Govern- 
ment should be connected only with general fundamental principles 
which w^ill help the farmer help himself. 

Any work the department may undertake in connection with the 
establishment of a market service should, in the opinion of Mr. 
Powell, be fundamental in helping in the organization of rural life. 
It should be done cautiously and slowly. The department's work 
in this field must grow as the result of experience, just as cooperative 
organization grows, for as soon as the department begins to collect 



8 MARKET SERVICE IN DEPARTMENT OF AGRICULTURE. 

information that will influence distributin"- and marketing prac- 
tices it will undoubtedly meet the antagonism of many of the agen- 
cies already in the field, because if designed to encourage the busi- 
ness organization of farmers it will tend to eliminate the unnecessary 
cost of distribution and to simplify the methods of placing the farm- 
ers' products before the American consumer and consequently will 
abolish these agencies. There are but few experts in crop distribu- 
tion and marketing in this country, and they can not be created sud- 
denly by legislation; and unless the department can obtain trained 
men who have a practical knowledge of the matter in hand it can be- 
come involved in conti-oversies which could easily endanger the use- 
fulness of the services it may perform, 

NECKSSri'Y OF EDUCATIONAL WORK ON RURAL ORGANIZATION. 

There has been nuich general discussion of the advantage of 
farmers organizing for the improvement of crops, for animal breed- 
ing, and for the preparation, distribution, and sale of farm products ; 
but very few, even among the farmers themselves, understand the 
principles on which rural business activities may be successfully or- 
ganized. Mr. Powell thinks these principles should be defined and 
that their definition and the education of the farmers in regard to 
them would be distinct advantages and might properly and very 
effectively be undertaken by the department. One of the first steps 
in this direction would be to assist the farmers in organizing their 
industries along lines that are sound from the social, economic, and 
agricultural point of view by setting forth the correct principles of 
organization. It might also make a careful study of existing organi- 
zations with a view to setting forth the principles governing the 
voting of members, payment of dividends, limitation of membership, 
and other questions essential to a successful farmers" business or- 
ganization. 

farmers' ORliANIZATlONS : WHAT THEY ARE AND WHAT TIIEY SHOULD BE. 

Mr. Powell further stated that most of the so-called farmers' or- 
ganizations in this country are in reality not cooperative, but simply 
stock corporations, the word " cooperative " being indiscriminately 
applied to almost every association of farmers. They have been or- 
ganized in this form because the laws of the States generally do not 
provide for the incorporation of nonprofit agricultural organizations. 
There are still other organizations which endeavor to operate on co- 
operative principles and which are hybrids between stock corpora- 
tions and cooperative associations. In these, a reasonable dividend 
may be paid on the capital stock and the balance of the surplus earn- 
ings distributed pro rata on the volume of business transacted. 



MARKET SERVICE IIST DEPARTMENT OF AGRICULTURE. 9 

A cooperative organization is usually formed without capital 
stock. It may, however, be a capital-stock corporation, provided 
the law under which it is incorporated gives the corporation the 
right to regulate the membership and the method of distributing the 
profits and proceeds. The cooperative organization operates at ac- 
tual cost, without pecuniary profit, for the benefit of the members. 
It is an industrial democracj^ in which each member has one vote 
or a voting power in proportion to the amount of business transacted 
by the individual member, after operating expenses, allowance for 
depreciation of property, a surplus, and the usual rate of interest on 
the capital invested have been deducted. The stock corporation, 
as is, of course, generally known, differs fundamentally in principle. 
It is founded on capital and is operated for the purpose of paying 
dividends. This is not the form under which to incorporate a 
farmers' business organization. In a stock corporation the member- 
ship is not under control. The farmer who owns stock in such a cor- 
poration has the legal right to sell it to whom he pleases, and through 
the sale of the stock the control of the organization may be trans- 
ferred from the producer to competing or unfriendly interests. Mr. 
Powell suggests that a farmers' organization should be composed ex- 
clusively of farmers. The right to membership should depend upon 
the transaction of business through the organization, and when a 
member ceases to conduct his business through the organization his 
membership should be terminated. Under the usual stock-corpora- 
tion laws these restrictions are not enforceable. A stockholder may 
sell his farm and still continue his membership, even though he 
should become identified with a competing organization. 

If the department would determine the most desirable legal prin- 
ciples to enact by making a careful investigation of the State and 
Federal laws that provide for the incorporation of nonprofit corpora- 
tions, the federation of nonprofit corporations into central nonprofit 
federations or of stock corporations or federations in which the cor- 
poration has the power to regulate the transfer of stock, the limitation 
of stock ownership, and the distribution of surplus earnings, Mr. 
Powell believes that the results w^ould serve as a guide to the States 
and to Congress in the preparation of legislation that must precede 
a general organization of farmers' cooperative associations. 

CONDITIONS NECESSARY TO SrCCESSFVL ORGANIZATION. 

It was further suggested that the department could also set forth 
the conditions under which an agricultural community can be suc- 
cessfully organized. There is a widespread idea that the organiza- 
tion of farmers is a thing to be generally desired. Many associations 
have been formed on altruism and high motives by impractical enthu- 



10 MARKET SERVICE IIST DEPARTMENT OP AGRICULTURE. 

siasts,but these ideals alone do not make sound business organizations. 
The South, the West, and the Central West are filled with the wrecks 
of organizations which were formed with high enthusiasm, but which 
fell by the wayside in the first real encounter with the distributing 
and selling agencies already in the field. It was urged by Mr. Powell 
that if an organization is to have the virility to live in the face of the 
competition to which it will be subjected it must be born of economic 
necessity, and that necessity must exist before it is formed ; in other 
words, unless the investment of the producers is endangered by social 
and economic conditions and they are obliged to unite to protect their 
interests the average farmers' organization can not exist, because the 
members will not stay united in the face of the competition it will 
encounter and the innumerable methods used by unfriendly interests 
to separate them from the association. 

Under present industrial conditions it is not possible to organize 
farmers in every community, and any movement having in view a 
widespread organization of the farmers of this country is, in Mr. 
Powell's opinion, doomed to failure. His experience indicates that a 
community which grows general farm crops and is fairly prosperous 
can not be organized and the organization successfully held together; 
and that no community except one founded on a special industry, 
such as fruit, dairy products, cotton, eggs, poultr3^ etc., can be 
organized for business purposes. Another fundamental is that the 
organization must be located in a restricted area so that the members 
may be personally acquainted, and wdien an organization is formed 
it must be founded and operated on cooperative principles. 

A STUDY OF DISTRIBUTION AND MARKETING AGENCIES. 

Mr. Powell suggested that the department could make to advantage 
a preliminary investigation of the cost of the present system of farm- 
crop distribution and marketing, in order to determine what propor- 
tion of the price paid by the consumer is chargeable to production, 
to the preparation of the product for transportation, to distribution, 
and to sale. A study of the different costs and profit,^ which enter 
into the distribution of a crop from the farm to the consumer would 
show some of the wastes and extravagances of the present system of 
distribution and marketing, and the department could do much to 
call these things to the attention of the producer, the distributing 
agencies, and the consumer, and in tlie end lead to the correction of 
some of the abuses by those directlj'' interested in the problems, as 
well as to the necessary corrective legislation. 

Sometimes the producer deals directly with the consumer, but in 
most cases a number of agencies intervene; that is, brokers, jobbers, 
distributing and marketing coi-porations, local agents or buyers, 



MAEKET SERVICE IN DEPARTMENT OF AGRICULTURE. 11 

soliciting agents, commission merchants, auction companies, and 
various types of retail merchants, such as venders, fruit stands, 
market places, and retail stores. No hard and fast lines separate one 
agency from the other and their functions, which frequently overlap 
or may be identical, are not legally defined, and the system is complex 
and bewildering to the average man. The functions and the status of 
these different distributing and marketing bodies which act as agents 
for the producer, according to Mr. Powell, should be legally defined, 
so that their operations may be subject to inspection and the State 
may be able to protect the producer against dishonest or discrimi- 
nating practices. A careful investigation by the department of these 
agencies, their functions, and where they act as selling agents, their 
financial interest in producing and distributing concerns, and the 
trade rebates and other discriminating practices which have crept 
into the distributing system would, in the opinion of Mr. Powell, do 
much to lay the foundation for corrective measures and would prob- 
ably lead to the enactment of uniform legislation by the States and 
by the Federal Government which would correct abuses and simplify 
the problem of eliminating some of the wastes and extravagances of 
the present distributing system. 

INVESTIGATION OF THE METHODS OF PREFARING FARM CROPS FOR MARKET. 

The present investigations of the department into the methods of 
handling, transporting, and storing perishable products should be 
extended to all farm crops and include a more general study of 
harvesting, grading, packing, and preparation for market. Much 
of the trouble complained of by the producer in his dealings with 
the distributing agencies is the result of his own carelessness in han- 
dling his products and ignorance of the requirements of the market. 
Mr. Powell knows no phase of the problem of marketing farm crops 
that is in greater need of improvement than the grading and packing 
as practiced by the average producer. Few farmers know how to 
standardize the grading or packing of fruits or vegetables, or how 
to prevent losses from decay as a result of improper handling. The 
work of the department should be educational in character, through 
demonstrations of handling, grading, and packing, and in other 
ways. It could help to establish standards for grading and packing, 
and these standards could be adopted by farmers' associations and 
by individual farmers. The work of the department along these 
lines would help in establishing the facts and principles on which 
to base the laws of the States and of the Federal Government that 
aim to prevent abuses in the grading, packing, and labeling of crops 
when offered for shipment or sale. 



12 MARKET SERVICE IN DEPARTMENT OF AGRICULTURE. 

SUMMARY OF WORK WIUt'H THE DEPARTMENT MIGHT UNDERTAKE TO ADVANTAGE IN 
CONNECTION WITH THE ESTABLISHMENT OF A MARKET SERVICE. 

In summarizing his suggestions for departmental work Mr. Powell 
divided them into five groups, as follows: 

(1) Determine the principles on which farmers' business organiza- 
tions can be successfully founded and operated. 

(2) Work out the principles of law which should be incorporated 
in State and Federal legislation and which would permit the proper 
organization and conduct of farmers' associations. 

(3) Study the distribution of farm crops as practiced by farmers' 
organizations and otlier agencies in order to determine the weak- 
nesses, the w^astes in distribution, tlie abuses and extravagances of 
the distributing system, and illegal practices, if such exist, and as 
a result set forth the principles of State and Federal legislation 
which would define the functions of the various distributing 
agencies, correct such abuses as legislation can reach, define and set 
forth the principles of cooperative organization, and assist the 
farmers in the formation of their organizations. 

(4) Help the farmers after they are organized to develop a sys- 
tem by which they can secure for tliemselves better information re- 
garding crop conditions, the movement of crops, the supply in dif- 
ferent markets, and the daily prices, this information to supplement 
the general data which the department may furnish the public. 

(5) Investigate the methods of handling, grading, packing, and 
preparing farm crops for market, to bring about a greater uniformity 
and to coT'rect the abuses which now^ cause a large proportion of the 
trouble in the dealings of the producer with the distributing 
agencies. 

COOPERATION AND ITS PRIMARY OBJECT. 

Dr. T. N. Carver, professor of economics at Harvard University, 
recently appointed Director of the Rural Organization Service of 
the department, when called by the Secretary, expressed the belief 
that the department should be interested more in the small farmer, 
who needs help or who needs to be shown how to help himself, than in 
the well-to-do capitalistic farmer. Cooperation, he said, seems to be 
the keynote to the situation, but cooperation does not necessarily mean 
business organization. In some communities cooperation without 
definite business organization may be the best to begin with. Organi- 
zation for the sake of organizing does not seem to succeed, but where 
there is a specific purpose, such as the desire to market products eco- 
nomically and profitably or to get cheaper credit where it is needed, 
there is a sound basis for organization. 



MARKET SEEVICE IN DEPARTMENT OF AGRICULTURE. 13 

The o-eneral problem of organization of the social life of rural 
communities, said Dr. Carver, is the larger part of the program. 
Experience in this country and in other countries where cooperation 
is carried on shows that it has greatly enriched country social life 
and made it worth while from the standpoint of living. All the 
light that can be obtained should be utilized not only to increase the 
farmer's income through better marketing and credit facilities, but 
also to give life in the country a new charm for the people who live 
there. It is no reflection on the intelligence of the American farmer 
that he has not solved these problems for himself. He has had no 
time for experiment. He has had enough to do to plant his crops 
and then to garner them. He has had but scant time to organize 
with his coworkers to market his crops to best advantage. The 
farmer has learned to cooperate better with nature than with man, 
and he has not learned how to cooperate along financial and social 

lines. 

The department can develop the best medium between the farmer 
and the financier, from Avhom he wants credit, and study localities 
for the best means and manner of transportation. It can study 
farmers' organizations and the rural educational systems in an effort 
to better them. 

Then there is the problem of making country life so attractive that 
the young men will be satisfied to remain on the farm. The promo- 
tion of social centers, the modernizing of farm homes, the installation 
of appliances that go to make city life easier, may help solve this 
problem, which is quite as important as the betterment of the system 
of rural credit and the establishment of farm banks. All of these 
are results expected from cooperation, whose primary object is the 
improvement of the financial, social, and religious conditions in rural 
districts. 

THE PARCEL POST AND RURAL MARKETING. 

At the request of the Secretary the Hon. D. J. Lewis, Representa- 
tive in Congress from the sixth Maryland district, who prepared the 
House parcel-post bill, addressed the meeting on the subject of the 
parcel post with reference to rural marketing. He quoted figures to 
show that the farmer receives approximately only one-fourth to two- 
thirds what is paid for his products by the consumer, and expressed 
the belief that the parcel post, when its present prohibitive restric- 
tions as to weight limit and abnormal pound rate are removed, wall 
be the means of doing away with three distinct phases of transporta- 
tion and as many or more costly processes of commerce— in other 
words, will eliminate the middleman from the handling of foodstuffs 



14 MARKET SEEVICE IN DEPARTMENT OF AGRICULTURE. 

grown in retail form on the farm, and establish direct transportation, 
at almost inconsiderable cost, between the farmer and the consumer. 
Mr. Lewis said in part : 

Under the present system farm products, such as eggs, butter, hams, sausage, 
chickens, etc., go from the farm to the selling agent, who converts them into 
wholesale quantities for the wholesale market, the wholesale market passes 
them on in wholesale units to the retail market, and the retail market recon- 
verts them into retail quantities and passes them to the consumer at prices 
about double that paid to the grower by the first purchaser. The consumer, or 
fourth buyer, can become the first buyer when the farmer brings his supplies to 
town and sells direct from the street ; but this method of distribution, even when 
possible, entails so much waste of effort and loss of time to the farmer that the 
price to the consumer is little, if any, better than the cumulative commrecial 
price. 

What is needed is a transportation conduit which will receive small ship- 
ments at the farm and convey them, like a letter, to the consumer. Under such 
a system the consumer could telephone or write the farmer and have his sup- 
plies furnished not only direct, but also fresh. The first order would grow into 
a standing order in cases where the articles, the prices, payment, etc., proved 
satisfactory, and thus permanent supply relations would develop, and the con- 
sumer would soon have his regular farmer or trucker as he now has his regular 
physician. There is at present no such transportation conduit as the one in 
43uestion, and it can not be supplied by the railroad or the express companies, be- 
cause they do not articulate with the farm. Express rates are prohibitive, the 
railway has no collect and delivery service, and the railroad's 100-pound weight 
and 25 cents charge minimum are also prohibitive. 

The parcel post, for which the people are now paying and which includes the 
necessary facilities, is the natural agency for carrying retail shipments from the 
farm, and the only reasons why it is not discharging this function are, first, 
the maximum weight limit of 11 pounds is so low as to prohibit the moving 
*f a normal shipment— in other words, a market basket worth while; and, second, 
the pound rates, except on the first pound, are prohibitively high and many 
times as high as the cost of the service. Even on the local and rural routes 
the pound rates are twice as high as the cost of the service, but on the rail 
Kones the pound rates, excepting the charge on the first pound, are — 

On the 50-mile zone, six times the cost of the service. 

On the 150-n)ile zone, four times the cost of the service. 

On the 300-mile zone, three and a half times the cost of the service. 

On the 6G0-mile zone, two times the cost of the service. 

As a niiitter of fact, the rates only correspond with the cost of service at 2,900 
miles, where the rate is 12 cents a pound, which is, of course, a prohibitive rate 
and distance. 

In framing the bill creating the parcel post. Congress clearly saw that the 
task of adjusting the features and processes of the service — tliat is, the weight 
limit, the classification, the zones, and other conditions — to the various require- 
ments of commerce could not well be encompassed by legislative regulation, so it 
charged the responsibility in this respect to the administration of the Post Office 
Department. The act provides that if the Postmaster General " find on experi- 
ence that the classification of articles mailable, as well as the rate limit, the 
rates of postage, zone or zones, and other conditions of mailability or any of 
them are such as to prevent the shipment of articles desired, or to permanently 
render the cost of the service greater than the revenue, he is hereby authorized, 
subject to the consent of the Interstate Commerce Commission, to reform from 



MARKET SEEVICE IN DEPAETMENT OF AGEICULTUEE. 15 

time to time sucli classification, weight limit, rates, zoue or zones, or couditions 
<of mailability), or either, in order to promote the service to the public or to 
insure the receipt of revenue adequate to pay the cost thereof." This act gives 
the Postmaster General plenary povper to meet the responsibility of adjusting the 
parcel post to the requirements of commerce. Transportation facilities for 
•direct dealing between the producer and consumer would be provided with a 
zone system of 100 miles to the zone, and at a rate of half a cent per pound for 
each zone traversed, adding three cents arbitrary for the tii-st pound. The 
result of such an adjustment would be the marketing of farm products direct 
to the consumer at half a cent per pound plus the initial charge of 3 cents for 
the first pound in the first zone, embracing an area of 20,106,240 acres ; 1 
cent per pound in the second zone, with an additional area of 60,318,720 acres ; 
and li cents per pound in the third zone, Avith an additional area of 100,531,200 
acres. In addition, this system would lead to the development of suburban 
gardening as a new industry, the articulation of railways with the farm, and 
the cutting of express rates in half. 

Summing up the application of his remarks to the market service, 
Mr. Lewis suggested that the department undertake an investigation 
of the extent to which a fully developed parcel post might lend itself 
to the great project of marketing farm products and study in detail 
the subject of packing at the farm for such transportation. 

Approved : 

B. T. Galloway, 

Assistant Secretary. 
Washington, D. C, July 8, 1913. 

o 



WASHIXOTOX : GOVERNMENT PRINTING OFFICE : 1913 



LIBRARY OF CONGRESS 




00057flDS0SA 



